NAPF discussion paper—where is the workforce in corporate reporting?

Darius Lewington, solicitor in the Lexis®PSL Corporate team, outlines what companies and lawyers need to know about the recent discussion paper from the National Association of Pensions Funds (NAPF) on the subject of companies’ reporting of workforce matters.

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Where is the workforce in corporate reporting?

The National Association of Pension Funds (NAPF) has published a discussion paper looking at how companies are currently reporting in their annual report and accounts on workforce matters and making suggestions for how such reporting could be improved.

What are the current reporting rules?

All companies (other than small companies) must prepare a standalone strategic report, separate from the directors' report, for financial years ending on or after 30 September 2013. The regulations require the strategic report to include, among other issues, information about the entity’s employees. However, such information is only required if it is considered necessary for an understanding of the development, performance or position of the company’s business.The EU Accounting Directive 2013/34/EU (the Accounting Directive) set out a new regime for the form and content of annual financial statements and was implemented in the UK by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. Companies will be required to apply the new financial reporting framework for financial years commencing on or after 1 January 2016.

The Accounting Directive reflects very closely the UK’s strategic report regulations and will require companies to disclose in their annual report information on:

  • policies
  • risks and outcomes as regards environmental matters
  • social and employee aspects
  • respect for human rights
  • anticorruption and bribery issues, and
  • diversity in their board of directors

With respect to social and employee-related matters, the information provided by companies may concern the actions taken to ensure:

  • gender equality
  • implementation of fundamental conventions of the International Labour Organisation
  • working conditions
  • social dialogue
  • respect for the right of workers to be informed and consulted
  • respect for trade union rights
  • health and safety at work, and
  • the dialogue with local communities, and/or the actions taken to ensure the protection and the development of those communities

How are companies currently reporting on workforce matters?

NAPF views the strategic report regime as a positive introduction, but feels that with respect to the workforce the new disclosures are limited and have to date brought little in the way of new or enlightening information. In general, the additional disclosures are restricted to the area of diversity with other issues evidently not being considered as meeting the materiality threshold.Although the 2015 Regulations highlight other potential areas for company reporting, NAPF is concerned that the new requirements are unlikely to generate many, if any, new disclosures on human capital matters.

How could company reporting be improved?

NAPF has highlighted four areas where corporate reporting could be developed:

The composition of the workforce

Who constitutes the workforce? How is it composed? Is the employment model sustainable? Relevant metrics include:

  • the total number of employees and workers
  • the proportion of full-time, part-time and contingent labour
  • diversity of ages and gender
  • divergence in benefits awarded to full-time employees but provided to part-time or temporary employees

The stability of the workforce

What are the turnover figures? Is talent being undesirably lost? Relevant metrics include:

  • employee turnover in the reporting period
  • regrettable turnover
  • remuneration policies and ratios
  • number of applicants per post
  • offer/acceptance statistics
  • levels of skills shortages
  • industrial relations issues
  • retention rates after parental leave
  • benefit entitlements of employees

The skills and capabilities of the workforce

What investment is made in training and development? Are the talents of the workforce being maximised and productivity gains being achieved? Relevant metrics include:

  • total investment in training and development
  • average hours spent on training per employee and for each employee category
  • number of courses taken
  • leadership/career development plans
  • internal-hire rate
  • the proportion of professionally qualified employees

Employee motivation

Is there a positive culture? Is the workforce motivated? Are the employees advocates for the business? Relevant metrics include:

  • employee engagement score
  • absentee rates
  • number of accidents and work-related fatalities
  • lost days to injury
  • occupational diseases rate

What are the next steps?

NAPF will host a series of roundtables in the second half of 2015 to bring together investors, analysts, companies, standard setters and policy makers to develop expectations further. The conclusions of these discussions will also be incorporated into NAPF’s Corporate Governance Policy & Voting Guidelines. NAPF will also provide an assessment of the progress made in this area in its 2016 Annual AGM Report.

Darius Lewington, solicitor in the Lexis®PSL Corporate team.

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